Pound jumps after BoE's Ben Broadbent remarks

Pound jumps after BoE's Ben Broadbent remarks

18 November 2015, 11:35

The British currency rose after the deputy governor of the Bank of England for monetary policy warned investors about "focusing too obsessively" on the inflation targets when considering when interest rates may rise.

In a speech to a Reuters event, Ben Broadbent said that the outside world is mistaken focusing on one particular nugget - the Monetary Policy Committee's two-year inflation forecast, as it is a far from being a perfect indicator of interest rates.

"It involves lots of conditioning assumptions, not just forward interest rates, and any of these can change. Our understanding of the economy evolves over time and the economy itself is always subject to unforeseeable shocks. Empirically, the behaviour of the economy matters more for interest rates than prior forecasts."

Broadbent explained that the MPC isn’t only concerned with inflation anyway, still less its most likely rate at a fixed point in the future.

"That means that the target horizon for inflation is generally longer than the earliest point at which policy can affect it – there is therefore no single, unique path of interest rates that will do the job.  It also means that the horizon itself can vary."

His full speech is available here.

GBP/USD was last at 1.5232, from 1.5202 before the speech.

EUR/GBP was last at 0.7009, compared to 0.7019 before Broadbent remarks.

The pound was also supported after the release of the Annual Survey of Hours and Earnings which indicated that weekly earnings for U.K. full time employees rose 1.8% to £528, much higher than the 0.2% rise seen the previous year.

Adjusted for inflation, weekly earnings increased by 1.9% compared to 2014. This is the first increase since 2008, and is due to a combination of growth in average earnings and a low level of inflation.

Median gross weekly earnings for full-time employees increased by 1.8% in the public sector, and by 1.6% in the private sector. Private sector earnings have remained consistently at around 85% of public sector earnings since 2009.

The gender pay gap for median earnings of full-time employees decreased to 9.4%, from 9.6% in 2014. This is the lowest since the survey began in 1997, although the gap has changed relatively little over the last 4 years, the report indicated.

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